CHICAGO, July 18, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Tube Mogul (Nasdaq:TUBE-Free Report), YuMe (NYSE:YUME-Free Report), CareDX (Nasdaq:CDNA-Free Report), Roka Bioscience (Nasdaq:ROKA-Free Report), Goldman Sachs (NYSE:GS-Free Report) and Terraform Power (Nasdaq:TERP-Free Report).
IPO Outlook: More Than Just Alibaba
Recent IPO's have seen lackluster demand for their shares, as several new issues have cut their range and seen softer prices. Let's take a look at what this means for the slew of issues that are set to come public as well as a couple of recent pricings.
One company that I have been looking at over the last week or so is Tube Mogul (Nasdaq:TUBE-Free Report). The company has software that allows agencies and advertisers to run commercials on online video portals such as YouTube and Vimeo. Investment bankers originally put a price range of $11-$13 for the 6.3M shares that were being offered. Today, the range was dropped to $7-$8. The stock is slated to trade on Friday, July 18.
One positive development is that two 5% owners of the stock plan to buy into the offering. Foundation Capital has expressed interest in purchasing up to $20M in shares of this offering and Trinity Ventures is looking to buy $5M. This means that of the $46.6M that will be raised (at a $7.50 offering price) more than half is already spoken for by insiders and thus will not be "flipped."
This added layer of intrigue makes it likely that demand for TUBE will stronger, as supply has just shrunk by a dramatic amount.
The main reason I was looking at TUBE as a potential trade was that no insiders were selling into this deal. That is pretty rare and despite a significant valuation gap between this company and recent IPO YuMe (NYSE:YUME-Free Report), this is still a deal to watch.
Another weak pricing / IPO is CareDX (Nasdaq:CDNA-Free Report). The company is a developer of diagnostic surveillance solutions for heart transplant recipients. Piper Jaffray was the lead on this deal that was originally indicated between $15-$17 for 3.1M shares. That number of shares was latter kicked higher to 4M and the deal priced at $10.
The stock opened for trading at $9.50, and in the first few minutes of trading was not able to get back to the pricing level of $10.00 - trading as high as $9.99 and as low as $9.50.
CDNA is also seeing interest from existing stockholders to purchase up to 345K at the IPO price. No names were given. Along with the 4M in the IPO the underwriters over-allotment for 600K shares, the buy in accounts for about 7.5% of the shares that coming to market (if over-allotment is exercised).
Thanks Go To Janet!
The other day, the Chair of the Federal Reserve stated that certain sectors of the market were seeing "stretched" valuations. One of those sectors named was biotech, so that isn't helping the cause of a new issue that is coming today and several others that are on the list.
Roka Bioscience (Nasdaq:ROKA-Free Report) is a molecular diagnostics company focused on testing for detection of food-borne pathogens. They are offering 5M shares via BofA Merrill Lynch with an initial range of $14-$16. Some are pointing a finger at the Fed for the weaker pricing of $12 on this offering.
In early trading, ROKA was able to trade a nickel higher than the IPO price of $12, but was as low as $11.36
iRadimed (IRMD) makes MRI compatible products and non-magnetic IV infusion pump systems. An offering of only 2M shares with an initial range of $5-$6 was enough for Roth Capital. They found more than enough buyers as the IPO priced at $6.25 and then opened for trading yesterday at $10.
Pricing over the range had been the norm earlier this year, but this deal tells us even more about how investment bankers have gotten away from a tried and true formula for IPO's.
The best practice is to have an initial offering of very limited size. This small size increases interest due in part to the laws of supply and demand. A initial low offering can then be revised upward, and then see a strong pricing.
One such strong pricing move has come from Goldman Sachs (NYSE:GS-Free Report). They are behind the Terraform Power (Nasdaq:TERP-Free Report) IPO that is slated for next week. The company is a dividend growth oriented company formed to own and operate clean power generation assets. The initial range was set at $19-$21, but has since been bumped higher to $23-$25. This implies strong demand for a very large deal at 20.1M shares.
The Big Fish
News broke today that the big fish in the sea is circling the boats. Alibaba (BABA) was set for an August 8 IPO as the number 8 has some Chinese significance. At least that was the speculation.
Today sources are saying that the IPO will come after the US Labor Day holiday on September 1. The deal is expected to be as big as $20 billion, so making sure all the i's are dotted and the t's are crossed is probably more important than launching on numerically significant day.
Individual investors should try to leverage the Zacks Rank. It will help you know when earnings estimates are moving higher and that can lead to better investment performance. IPO's will tend to trade for 60 days before the underwriters can initiate research coverage on them, so a Zacks Rank is at least 60 days out. That is such an important factor that it cannot be understated. The stocks that will outperform will more times than not have a high rank early on.
As much as you want to get in on the next best thing, you really want to avoid the stock that just went public and is now headed for the woodshed. The gains you make on a gamble are one thing, but the losses that can come from a "broken stock" or one that "shouldn't have gone public" can be immense. They say money won is twice as sweet, but trust me when I tell you that lost money due to impatience and stupidity is 10x as disgusting.
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